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Friday, January 3, 2014

Insurance policy to get dearer from 1st January

From January 1, 2014, insurance policy will get
costlier as the government widens its service tax purview to include insurance
policy premiums paid by policyholders.

The tax rate will be different for different products. On term products and
unit-linked insurance policies, in which charges on mortality and
administration only, it will be 12.36 %; while on traditional products it will
be 3.09 %, as most of the premium goes into savings.

Confirming the separate collection of service tax, Mr. A.K. Sahoo, Executive
Director, LIC and Chief of South Central Zone, told that final guidelines on
the modalities of service charges to be levied on the risk premium (excluding
savings component) would be out in about a week.

“With the complete switch-over to the new product norms from January 1, all the
companies have to include this in the new design norms clearly spelling out the
exact details of taxes", Mr. Sahoo said.

According to experts, it would have an adverse impact on insurance, which is
basically a social security instrument.

“When the penetration of insurance is still low, this may discourage people
from buying life insurance,'' said Mr. P. Nandagopal, CEO, India First Life
Insurance Company.

There have been requests from the industry to waive service tax on life
insurance after it was announced in this year's Budget proposals.

Even the Insurance Regulatory and Development Authority (IRDA) has requested
the union finance ministry for removal of service tax. Insurance should be more
tax-payer friendly, it said.